Despite the best of collections practices, every business faces moments when you’ve got more payables due than receivables in the bank. A cash reserve account allows you to borrow from yourself to keep paying others while waiting to get paid. But what if you leveraged your cash reserve account to stay afloat these past few years, or lost your cushion to cover another’s bad debt?
For whatever reason you find your company in this position, here are some steps I take, and pretty much in this order, when I need cash fast. (Caution: this post includes recommendations to discount your fees – something I recommend ONLY in the case of cash emergencies.)
- Write down EXACTLY how much you need and by when. The universe provides, but we have to do the math.
- Squeak Up. Review receivables for late payments. Call and say, “I see you had a payment of $X due on the first. Can I send a messenger over to pick up a check today?” While you’re making calls, contact any large receivables you’re expecting in the next three weeks to say, “I’m working on my accounts and see you have a payment of $X due on the fifteenth. I’m calling ahead to be sure this will be paid as scheduled.” Companies with tight cash pay the squeakiest wheel.
- Bill Sooner. Bill new invoices that would normally wait till month’s end. For example, go ahead and bill any hourly work when you know you’re done with that client for the month, or if the amount of work has been a big part of your capacity. You can also bill now any progress payments not due till next month and hope the client pays early. Seek early renewal for any annual contracts due in the next two months. Improve the chance that you’ll get payment faster of any of the above by offering a 5 – 10% discount for early payment by a specified date. This discount is likely less expensive than late fees, overdrafts or time to manage the lagging payables on your list.
- Revive Lagging Projects. Review current projects to further any work that is lagging in “client approval pending” status. There’s often a significant amount of cash tied up in works-in-progress stalled out by client’s disorganization and/or our lack of proactive project management. While you’re scanning, take a look at past project clients and contact them for new work. For extra speed, tell them, “I’ve got a lull in my capacity and would love to fill it with work that would help you too. Anything you want to contract and pay before the tenth will include a 5% discount.” You can even try the discount to encourage lagging approvals, giving your client a reason to make the input you need from them a top priority.
- Close New Sales. Follow up with any leads in the pipeline that are due for contact, are lagging in indecision, or haven’t been touched for more than three months. Go in for the big close: “It sounds like you have all the information you need to make a decision today. Can I send you a contract and invoice?” Offer that discount as a last resort incentive for speed.
If you work your way through this list and still don’t have the cash you need to meet your obligations on time or as promised, contact your payables. Explain that you will be late, and tell them by when they can expect promised payment. Be respectful of the possibility that your delays will create the same cash problem for them. Forewarning is powerful information.